Dear Friends,
I am working with a Publishing Company in Chennai with a PAN India strength of 60 staff. We are already covered under PF and remitting the PF for the staff earning a gross salary of less than Rs. 25,000 (around 15 persons).
Our current salary structure consists of 60% Basic, and the management has decided to change it to 30%. I need the following assistance, clarifications, or opinions:
1. The new pay structure will be Basic 30% + HRA 35% + Spl. Allowance 35%. Can HRA be more than Basic? So, the gross remains the same, the net will be lesser (-PF), and CTC will be higher (+PF).
2. We plan to cover and remit the PF for all staff (Basic of 30% and limit the PF ceiling to Rs. 15,000). We are not going to change the basic of staff who are already remitting the PF to avoid any repercussions from the EPF Office. Your opinion, please! We will implement this with a 2-month notice (i.e., effective from 1st Jan 2019).
3. We don't have a Leave Encashment policy currently. What are the benefits and losses to the employees? Employees may lose 50% of their Gratuity but will receive 12% of PF from the employer's side, etc.
4. How should we handle staff members who are not willing to accept the change and what are the key points to convince them?
Looking forward to your replies. Thanks in advance.
Raj
From India, Madras
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I am working with a Publishing Company in Chennai with a PAN India strength of 60 staff. We are already covered under PF and remitting the PF for the staff earning a gross salary of less than Rs. 25,000 (around 15 persons).
Our current salary structure consists of 60% Basic, and the management has decided to change it to 30%. I need the following assistance, clarifications, or opinions:
1. The new pay structure will be Basic 30% + HRA 35% + Spl. Allowance 35%. Can HRA be more than Basic? So, the gross remains the same, the net will be lesser (-PF), and CTC will be higher (+PF).
2. We plan to cover and remit the PF for all staff (Basic of 30% and limit the PF ceiling to Rs. 15,000). We are not going to change the basic of staff who are already remitting the PF to avoid any repercussions from the EPF Office. Your opinion, please! We will implement this with a 2-month notice (i.e., effective from 1st Jan 2019).
3. We don't have a Leave Encashment policy currently. What are the benefits and losses to the employees? Employees may lose 50% of their Gratuity but will receive 12% of PF from the employer's side, etc.
4. How should we handle staff members who are not willing to accept the change and what are the key points to convince them?
Looking forward to your replies. Thanks in advance.
Raj
From India, Madras
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Reduction/in downward revision in Basic resulting in reduction in EPF contribution is not permissible. Increase in HRA or any other allw. as compensatory measures, to show overall NIL reduction in gross or increase also not permissible and it cannot be undone like this. Pl.refer relevant attachment in my previous posting.
EMPLOYEES’ PROVIDENT FUND ORGANISATION
Bhavishya Nidhi Bhawan, 14,
Bhikaji Cama Place, New Delhi – 110 066.
No.Coord/4(6)2003/Clarification/VolII/7394
Dated : 23.5.2011
All Addl. CPFCs (Zones) All RPFCs (In-charge of Regions/Sub-Regions)
Sub : Splitting of Minimum Wages for the purpose of PF contribution not permissible.
Sir,
Attention of all concerned is invited towards this office circular No.Coord./4(6)2003/Clarification/13633 dated 6.6.2008 vide which it was advised to ensure that P.F. Contributions on at least Minimum Wages are remitted by the establishments. It was also directed to review all such cases disposed of u/s 7A of the Act where determination of dues has taken place on wages lesser than Minimum Wages.
2. However, it has been observed that still uniform approach in this regard is not followed by the field offices which is viewed seriously. It is also observed that the field offices are not duly defending the issue in spite of the fact that the Division Bench of Hon’ble High Court, Karnataka in the matter of Group 4 Securities Guarding Ltd. vs. RPFC has categorically upheld the view that RPFCs u/s. 7A of the Act can examine and look into the nature of contract entered between the employer and its employees as well as the pay structure to decide whether the pay is being split up under several heads as a subterfuge to avoid PF contribution.
3. The order of the Division Bench was challenged by the establishment before the Apex Court. While tentatively upholding the order of the Division Bench, the Hon’ble Supreme Court in its order dated 23.7.2004 again granted liberty to the authorities to decide the matter in accordance with law on its merits. As such the authorities have to consider the order of the Division Bench of Hon’ble High Court, Karnataka unless there is substantial evidence to lead otherwise.
4. Accordingly, the matter has been examined in view of the Apex Court’s direction and the following guidelines are issued which should be adhered to and followed by all strictly.
5. The EPF & MP Act, 1952 is a beneficial social security legislation. In construing the provisions of the Act, it has already been settled earlier* that wherever two views are reasonably possible, the view which helps the achievement of the object should be preferred and accordingly the assessing authority while determining dues under section 7A should curb any attempt to curtail the legitimate social security benefits of the employees. It is needless to reiterate the impact of contribution on lesser wages by splitting the wages into different heads, which results in lesser accumulations in PF account and miniscule pension to the member/family.
[*The RPFC, Punjab vs. Shibu Metal Works - 1965 (1) LLJ 473].
6. As you are aware, section 2(b) of EPF & MP Act, 1952 defines the basic wage which excludes all kind of allowances from being considered as basic wage. As the term suggests, ‘basic wage’ or ‘basic salary’ is the base salary which is provided to a person in lieu of his services. It is without any allowances which may or may not be added to basic wages in terms of employment.
7. However, it appears that some confusion is prevailing among field offices as to whether basic wages can be lower than the minimum wages or whether an establishment paying minimum wages to its employees can be allowed to split up the wages into various allowances reducing the PF contribution by making it a part of “terms of employment or Contract”.
8. It would be worth to see that the terms ‘basic’, ‘basic wage’ and ‘minimum wage’ are defined in Oxford Dictionary as below :
(i) “basic. Adj.1. forming an essential foundation; fundamental. 2. consisting of the minimum required or offered”
(ii) “basic wage. n.1 a minimum wage earned before additional payments such as overtime. 2. Austral/NZ/ the minimum living wage, as determined by industrial tribunal”
(iii) “minimum wage, n. the lowest wage permitted by law or by agreement”.
9. Thus, whereas the minimum wage is the lowest permitted wage ought to be paid to a worker as per law as upheld and revisited on various occasions by the Hon’ble Supreme Court*, basic wage is only relevant for allowing additional allowances by treating it (basic wage) as a basic/floor level.
(*Crown Aluminium Works vs. Workers Union, [1958 Vol.I LLJ, Page I), Unichoyi vs. State of Kerala [1961 Vol.I LLJ P.631], Kamani Metals & Alloys Ltd. vs. Their Workmen [1967 Vol.II-55; (1967) 2 SCR Page 463]).
10. Another aspect of basic wage/salary is that it is provided to all classes of employees irrespective of quantum of their salary and its quantum varies with every class/post of an employee whereas minimum wage is prescribed only for the lowest paid employee to whom any lesser payment of wages is not permitted by law.
11. From above, it is abundantly clear that basic wage in no case can be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment which cannot pay even minimum wages to its employees, would be willing to pay allowances to them and if such instances exist, there is certainly a malafide motive which may be considered as knowingly making or causing to make false statement/representation punishable u/s 14(1) of EPF & MP Act, 1952. It may also attract the provision of section 418 of IPC.
12. Further, it also needs to be kept in mind that any agreement which negates any law of land is ab-initio-void and would have effect of non-existence. Therefore, any such terms of agreement for employment where minimum wages is splitted to reduce the liability under EPF & MP Act, 1952 would be governed by the same logic as it is against the provisions of Minimum Wages Act and hence illegal.
13. Also Minimum Wage being a state matter, clarifications were sought from various State Governments. The replies received reveal that minimum wage is a lump sum composite amount arrived at by following the permissible procedure of fixation as revised from time to time and it cannot be segregated and reclassified. Thus, the State Governments have also observed that splitting of minimum wages is not permissible in the eye of law.
14. Accordingly, all concerned are directed to ensure that P.F. Contributions are not remitted on wages less than Minimum Wages since every employer is legally bound to pay at least minimum wages to his/her employees and minimum wages are not amenable to split up. It is not pay package.*
[*Civil Appeal 4259 of 1999 Air Freight Ltd. vs. State of Karnataka and Ors., 1999 Supp.(1) SCR 22]
15. It is needless to mention that wherever the matter regarding splitting of wages is challenged or pending in a court of law, the stand of department along with all rules and guidelines of Hon’ble Supreme Court should be effectively utilised to defend the case. It is also mentioned that nothing said above shall come in way of implementation/execution of any order of a court of law.
16. The assessing officers shall examine full facts about the wage structure, minimum wages prescribed by the appropriate govt. for the relevant class and provide reasonable opportunity to the establishment before deciding the subterfuge, if any.
All the concerned officials/officers are requested to strictly comply with above said guidelines in regard to subject matter.
Please acknowledge receipt.
(This issues with the approval of CPFC)
(K.C. Pandey) Addl. Central P.F. Commissioner(Compliance)
From India, Bangalore
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1158EMPLOYEES’ PROVIDENT FUND ORGANISATION
Bhavishya Nidhi Bhawan, 14,
Bhikaji Cama Place, New Delhi – 110 066.
No.Coord/4(6)2003/Clarification/VolII/7394
Dated : 23.5.2011
All Addl. CPFCs (Zones) All RPFCs (In-charge of Regions/Sub-Regions)
Sub : Splitting of Minimum Wages for the purpose of PF contribution not permissible.
Sir,
Attention of all concerned is invited towards this office circular No.Coord./4(6)2003/Clarification/13633 dated 6.6.2008 vide which it was advised to ensure that P.F. Contributions on at least Minimum Wages are remitted by the establishments. It was also directed to review all such cases disposed of u/s 7A of the Act where determination of dues has taken place on wages lesser than Minimum Wages.
2. However, it has been observed that still uniform approach in this regard is not followed by the field offices which is viewed seriously. It is also observed that the field offices are not duly defending the issue in spite of the fact that the Division Bench of Hon’ble High Court, Karnataka in the matter of Group 4 Securities Guarding Ltd. vs. RPFC has categorically upheld the view that RPFCs u/s. 7A of the Act can examine and look into the nature of contract entered between the employer and its employees as well as the pay structure to decide whether the pay is being split up under several heads as a subterfuge to avoid PF contribution.
3. The order of the Division Bench was challenged by the establishment before the Apex Court. While tentatively upholding the order of the Division Bench, the Hon’ble Supreme Court in its order dated 23.7.2004 again granted liberty to the authorities to decide the matter in accordance with law on its merits. As such the authorities have to consider the order of the Division Bench of Hon’ble High Court, Karnataka unless there is substantial evidence to lead otherwise.
4. Accordingly, the matter has been examined in view of the Apex Court’s direction and the following guidelines are issued which should be adhered to and followed by all strictly.
5. The EPF & MP Act, 1952 is a beneficial social security legislation. In construing the provisions of the Act, it has already been settled earlier* that wherever two views are reasonably possible, the view which helps the achievement of the object should be preferred and accordingly the assessing authority while determining dues under section 7A should curb any attempt to curtail the legitimate social security benefits of the employees. It is needless to reiterate the impact of contribution on lesser wages by splitting the wages into different heads, which results in lesser accumulations in PF account and miniscule pension to the member/family.
[*The RPFC, Punjab vs. Shibu Metal Works - 1965 (1) LLJ 473].
6. As you are aware, section 2(b) of EPF & MP Act, 1952 defines the basic wage which excludes all kind of allowances from being considered as basic wage. As the term suggests, ‘basic wage’ or ‘basic salary’ is the base salary which is provided to a person in lieu of his services. It is without any allowances which may or may not be added to basic wages in terms of employment.
7. However, it appears that some confusion is prevailing among field offices as to whether basic wages can be lower than the minimum wages or whether an establishment paying minimum wages to its employees can be allowed to split up the wages into various allowances reducing the PF contribution by making it a part of “terms of employment or Contract”.
8. It would be worth to see that the terms ‘basic’, ‘basic wage’ and ‘minimum wage’ are defined in Oxford Dictionary as below :
(i) “basic. Adj.1. forming an essential foundation; fundamental. 2. consisting of the minimum required or offered”
(ii) “basic wage. n.1 a minimum wage earned before additional payments such as overtime. 2. Austral/NZ/ the minimum living wage, as determined by industrial tribunal”
(iii) “minimum wage, n. the lowest wage permitted by law or by agreement”.
9. Thus, whereas the minimum wage is the lowest permitted wage ought to be paid to a worker as per law as upheld and revisited on various occasions by the Hon’ble Supreme Court*, basic wage is only relevant for allowing additional allowances by treating it (basic wage) as a basic/floor level.
(*Crown Aluminium Works vs. Workers Union, [1958 Vol.I LLJ, Page I), Unichoyi vs. State of Kerala [1961 Vol.I LLJ P.631], Kamani Metals & Alloys Ltd. vs. Their Workmen [1967 Vol.II-55; (1967) 2 SCR Page 463]).
10. Another aspect of basic wage/salary is that it is provided to all classes of employees irrespective of quantum of their salary and its quantum varies with every class/post of an employee whereas minimum wage is prescribed only for the lowest paid employee to whom any lesser payment of wages is not permitted by law.
11. From above, it is abundantly clear that basic wage in no case can be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment which cannot pay even minimum wages to its employees, would be willing to pay allowances to them and if such instances exist, there is certainly a malafide motive which may be considered as knowingly making or causing to make false statement/representation punishable u/s 14(1) of EPF & MP Act, 1952. It may also attract the provision of section 418 of IPC.
12. Further, it also needs to be kept in mind that any agreement which negates any law of land is ab-initio-void and would have effect of non-existence. Therefore, any such terms of agreement for employment where minimum wages is splitted to reduce the liability under EPF & MP Act, 1952 would be governed by the same logic as it is against the provisions of Minimum Wages Act and hence illegal.
13. Also Minimum Wage being a state matter, clarifications were sought from various State Governments. The replies received reveal that minimum wage is a lump sum composite amount arrived at by following the permissible procedure of fixation as revised from time to time and it cannot be segregated and reclassified. Thus, the State Governments have also observed that splitting of minimum wages is not permissible in the eye of law.
14. Accordingly, all concerned are directed to ensure that P.F. Contributions are not remitted on wages less than Minimum Wages since every employer is legally bound to pay at least minimum wages to his/her employees and minimum wages are not amenable to split up. It is not pay package.*
[*Civil Appeal 4259 of 1999 Air Freight Ltd. vs. State of Karnataka and Ors., 1999 Supp.(1) SCR 22]
15. It is needless to mention that wherever the matter regarding splitting of wages is challenged or pending in a court of law, the stand of department along with all rules and guidelines of Hon’ble Supreme Court should be effectively utilised to defend the case. It is also mentioned that nothing said above shall come in way of implementation/execution of any order of a court of law.
16. The assessing officers shall examine full facts about the wage structure, minimum wages prescribed by the appropriate govt. for the relevant class and provide reasonable opportunity to the establishment before deciding the subterfuge, if any.
All the concerned officials/officers are requested to strictly comply with above said guidelines in regard to subject matter.
Please acknowledge receipt.
(This issues with the approval of CPFC)
(K.C. Pandey) Addl. Central P.F. Commissioner(Compliance)
From India, Bangalore
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Thank you for the above explanations, Mr. Kumar. However, it didn't clear my doubts.
1. We have already covered PF for the staff who earn less than Rs. 25,000 (so, the basic is 60% i.e., Rs. 15,000, which will not change as it is higher than the S&E minimum wages of Rs. 6970).
2. We are planning to adjust the basic from 60% to 30% for the staff earning more than Rs. 25,000 (i.e., the basic will be 30%, i.e., Rs. 7500) - ensuring that the basic will still be above the minimum wages.
So, isn't this still compliant with the law? Additionally, we are now extending this adjustment to cover all staff. Please advise.
From India, Madras
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1. We have already covered PF for the staff who earn less than Rs. 25,000 (so, the basic is 60% i.e., Rs. 15,000, which will not change as it is higher than the S&E minimum wages of Rs. 6970).
2. We are planning to adjust the basic from 60% to 30% for the staff earning more than Rs. 25,000 (i.e., the basic will be 30%, i.e., Rs. 7500) - ensuring that the basic will still be above the minimum wages.
So, isn't this still compliant with the law? Additionally, we are now extending this adjustment to cover all staff. Please advise.
From India, Madras
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Dear Harnish,
I'm not able to understand the purpose behind the reduction of basic from the existing 60% to 30%. Does this going to impact the gross salary of these staff and thus going to cause a reduction in their social benefits like EPF/EPS contribution, gratuity, etc.? And if this results in alteration of the contract of appointment affecting their service conditions, and whether this proposal is communicated to all the staff involved and their concurrences are obtained?
From India, Bangalore
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I'm not able to understand the purpose behind the reduction of basic from the existing 60% to 30%. Does this going to impact the gross salary of these staff and thus going to cause a reduction in their social benefits like EPF/EPS contribution, gratuity, etc.? And if this results in alteration of the contract of appointment affecting their service conditions, and whether this proposal is communicated to all the staff involved and their concurrences are obtained?
From India, Bangalore
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What is the basis of payment of HRA to a workman? Is it necessary to pay HRA to each and every workman? Should HRA and conveyance be equal or in equal proportion to all the workmen?
If a workman is receiving more or equal "Basic wage" but less "HRA" compared to another workman, would this scenario constitute unfair labor practice by the employer? Can the workman claim the difference in HRA, and if so, to which authority should he address the issue (especially in a state where there is no specific provision for HRA)?
Example:
'A' workman receives a Basic wage of 6000, HRA of 1000, and Conveyance of 1000.
'B' workman receives a Basic wage of 6000, HRA of 2000, and Conveyance of 800.
'C' workman receives a Basic wage of 5000, HRA of 3000, and Conveyance of 1000.
All three, A, B, and C, are male workmen working in the same unit of the company and living in the same city.
In the example provided, is there an unfair labor practice by the employer? Would this situation potentially violate the Equal Remuneration Act, Minimum Wages Act, and/or any other relevant legislation?
From India, Mumbai
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If a workman is receiving more or equal "Basic wage" but less "HRA" compared to another workman, would this scenario constitute unfair labor practice by the employer? Can the workman claim the difference in HRA, and if so, to which authority should he address the issue (especially in a state where there is no specific provision for HRA)?
Example:
'A' workman receives a Basic wage of 6000, HRA of 1000, and Conveyance of 1000.
'B' workman receives a Basic wage of 6000, HRA of 2000, and Conveyance of 800.
'C' workman receives a Basic wage of 5000, HRA of 3000, and Conveyance of 1000.
All three, A, B, and C, are male workmen working in the same unit of the company and living in the same city.
In the example provided, is there an unfair labor practice by the employer? Would this situation potentially violate the Equal Remuneration Act, Minimum Wages Act, and/or any other relevant legislation?
From India, Mumbai
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Dear Mr. Kumar,
Currently, we are not covering all the staff under EPF (except for staff earning less than 25K). Management has planned to include all staff by capping the PF calculation limit at Rs. 15K.
The Gross salary will remain unchanged, but the Nett will decrease (-PF) and CTC will increase (+PF). This adjustment will certainly impact Gratuity.
The change in Basic will be implemented within 2 months, and the staff will receive prior notice and a letter detailing the pay structure changes.
My other query is, 'How should we handle staff members who are unwilling to accept the change and what key points can we use to convince them?'
Thanks.
From India, Madras
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Currently, we are not covering all the staff under EPF (except for staff earning less than 25K). Management has planned to include all staff by capping the PF calculation limit at Rs. 15K.
The Gross salary will remain unchanged, but the Nett will decrease (-PF) and CTC will increase (+PF). This adjustment will certainly impact Gratuity.
The change in Basic will be implemented within 2 months, and the staff will receive prior notice and a letter detailing the pay structure changes.
My other query is, 'How should we handle staff members who are unwilling to accept the change and what key points can we use to convince them?'
Thanks.
From India, Madras
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Hi Hanish,
My hunch is that employees may not create a fuss when their gross pay is not reduced. However, the concern lies in its impact on gratuity, which will certainly create problems. No one is going to take it for granted, regardless of the justification provided. This anomaly needs to be addressed.
I'm still not clear on what drives you to reduce the basic pay. Is the motive behind this solely to lower your gratuity costs? I don't think it's worth the trouble being taken.
From India, Bangalore
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My hunch is that employees may not create a fuss when their gross pay is not reduced. However, the concern lies in its impact on gratuity, which will certainly create problems. No one is going to take it for granted, regardless of the justification provided. This anomaly needs to be addressed.
I'm still not clear on what drives you to reduce the basic pay. Is the motive behind this solely to lower your gratuity costs? I don't think it's worth the trouble being taken.
From India, Bangalore
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Dear Friends,
Just a small clarification is required. If we are not required to pay the EPF for 10 fixed-salary contractual employees, what undertaking or declaration form should be submitted to the client? Please send me the form.
Thank you.
From India, Nawabpet
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Just a small clarification is required. If we are not required to pay the EPF for 10 fixed-salary contractual employees, what undertaking or declaration form should be submitted to the client? Please send me the form.
Thank you.
From India, Nawabpet
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Hi Saisuresh,
It's an important liability on the part of the Principal Employer to ensure EPF is recovered from employees as well as from the employer (the contractor) and remitted to the PF accounts of employees. Failing to do so will make it the ultimate liability of the PE to remit to EPFO. The PE may adjust the thus remitted money from the labor bill payable to the Contractor. No undertaking or declaration will help in a situation when the contributions are not remitted by the due dates to EPFO as it's the ultimate responsibility of the Principal Employer. Therefore, it's necessary for the PE to verify and obtain copies of EPF remitted challans and safely keep them for future references; this should happen before the release of payment to the contractor. The PE will have legal rights to recover amounts involved from the contractor's bill if the contractor defaulted in remittance relating to earlier months. Only this will safeguard the PE from any charge of violations.
From India, Bangalore
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It's an important liability on the part of the Principal Employer to ensure EPF is recovered from employees as well as from the employer (the contractor) and remitted to the PF accounts of employees. Failing to do so will make it the ultimate liability of the PE to remit to EPFO. The PE may adjust the thus remitted money from the labor bill payable to the Contractor. No undertaking or declaration will help in a situation when the contributions are not remitted by the due dates to EPFO as it's the ultimate responsibility of the Principal Employer. Therefore, it's necessary for the PE to verify and obtain copies of EPF remitted challans and safely keep them for future references; this should happen before the release of payment to the contractor. The PE will have legal rights to recover amounts involved from the contractor's bill if the contractor defaulted in remittance relating to earlier months. Only this will safeguard the PE from any charge of violations.
From India, Bangalore
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